The latest Civil Procedure Rules (CPR) Committee meeting minutes for March 2020 contain proposals for material changes to cost management. Amended Rules and linked Practice Direction (along with a new Precedent form) are awaiting approval which will entail legislative approval by Statutory Instrument. With the Covid-19 crisis, it is unclear when the new provisions will come into force but tentatively this could happen by October 2020.
Cost budgeting is a central plank to post issue cost control and the rules surrounding variations have long needed refreshing as the main budgeting provisions have developed over time. The existing provisions on how and when to vary an approved budget lacked clarity. It is hoped that these changes will continue to increase awareness and the need for parties to address the costs consequences of evidential and procedural developments in litigation at all times and not just at the first case management conference (CMC). Keoghs has always worked closely with their in-house costs specialists to control and contain costs spend and it is pleasing to see the proposed rules now reflect our existing best practice.
A number of the Practice Directions in relation to budgeting are upgraded to “Rule status” (Rule 3). Whilst the substance of the Rules remain the same, it will save anyone having to go between the Rules and the Practice Direction to understand what needs to be done in respect of budgeting.
The biggest change is the new Rule 3.15A which deals with the revision and variation of costs budgets on account of significant developments. The new Rule includes a process that must be followed in respect of varying a budget that takes place on the new Precedent T variation document. The Rule states that a party now must revise their budget where there is a significant development. This will apply to revising a budget up or down and will open up challenges from a defendant to seek a revision when a significant development occurs that would reduce the budgeted costs, such as an admission of liability.
The varying party will be required to submit the Precedent T to the opponent and the court, without delay. The new precedent variation document is in the form of a budget, which shows the previous incurred and estimated costs from the last budget along with details of the proposed revision. This will allow the parties and the court to understand in a recognisable format what the proposed variations to the budget are. The new Precedent T is in excel format.
There is a second sheet included in the precedent that details the variation particulars. This document resembles Precedent R and allows the varying party to detail the significant development overall and in each phase where the proposed variation of an individual phase exceeds £10,000. The opponent is able to comment on the variation sought. If the revised figure cannot be agreed, they are able to make a counter offer for the revised budgeted costs. There is also a column for the judge to record the revised figure allowed.
The current rules on varying a budget are rarely followed and often an afterthought to an application being made. Many practitioners are unaware that currently the proposed varied budget should be sent to opponents for agreement prior to an application to vary being made. The new Rules and Precedent T aim to keep budget amendments in the mind of practitioners at all times; and not just where budgets increase, but also where there is a significant development warranting a reduction.
A party who is asked to amend their budget by their opponent due to a significant development could be running the risk of losing their budgeted costs at assessment. Examples where this may be relevant include:
Prompt revisions to a budget will be required and it would be dangerous not to revise given the express requirement to do so. Turner J recently declined to grant an application to vary a costs budget in Maurice Hutson & Ors v Tata Steel UK Ltd [2020] EWHC 771 (QB) based on an alleged significant development where the work had already been undertaken and the costs incurred. This emphasises the need to revise a budget as quickly as possible when required.
The strengthening of the Rule for amending budgets and the inclusion of the word “must” suggests that the saving provision at CPR 3.18 of good reason may well become a higher threshold to overcome at detailed assessment where a party could, and should, have varied their budget in good time before incurring the costs associated with an alleged significant development. It may also make it easier for a paying party to establish good reason to depart downwards from an approved budget where the receiving party failed to apply to revise their budget accordingly.
The new Rule 3.15A is a welcome change to ensure that costs are managed by both parties throughout the litigation and not just at the first CMC. The financial consequences of not varying an approved budget could be a loss of all costs associated with an alleged significant development. On the other hand, a paying party may be able to establish good reason exists to depart from an approved budget where the receiving party failed to revise a budget down during the substantive case.
Paying parties and the courts will need to monitor the conduct of receiving parties closely once the rules come into force. It will be important to ensure unnecessary applications to vary do not succeed in cases where there is no significant development but rather an attempt to ‘repair’ a defective budget via the backdoor. The proposed rule changes for costs management and budget variation continue to highlight the importance of substantive lawyers working alongside costs specialists in order to reduce and manage overall claims spend. This approach has been utilised by Keoghs for many years and we will continue to work closely with insurers and compensators to combat excessive claims and challenge unsavoury behaviour.
For more information, please contact Dan Oldroyd.
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